That was ugly. The bulls did not have a good week as the bears got the best of them as the major indexes took an average loss of 4%. The was headline news from quite a few of the bigger names that weighed on the market and a nasty unemployment report was too much for the bulls to overcome.

For the week, the Dow sank 435 points, or 4.8% to finish at 8599. The Nasdaq encountered a 60 point loss, or 3.7% and closed at 1571. The S&P 500 dipped 41 points, or 4.4%, and settled at 890 on Friday.

The Dow’s resistance at 9,000 has held like grass on dirt and although that level was broken, we quickly retreated. The Nasdaq broke through 1600 and also pulled back after reaching a high of 1665. The S&P 500 broke 900 but also folded like a bad poker hand once it got there. I don’t expect the bulls to throw in the towel that easily and there will be some major battles going on this week.

One likely battle ground will be Alcoa (AA, $10.81, down $0.55) which is one of the 30 Dow components but wasn’t much help as the stock lost 15% for the week. The company slashed jobs and announced restructuring plans and will be the first to report as earnings season kicks off Monday. Alcoa made a nice run from December to last Monday which allowed for some nice profits in the January 10 calls (AAAB, $1.15, down $0.45) which we got out of at $2. Alcoa will get cheap again and we will look for another trade in a couple of weeks or months.

Intel (INTC, $14.15, down $0.40) crashed the party and lowered revenue guidance for the fourth quarter. The stock traded over 130 million shares on Wednesday after saying they now see revenue of $8.2 billion versus expectations for $8.7 billion.

Here’s the funny thing with Intel. What everybody and Wall Street is forgetting is that the company actually beat earnings in October. Here is what we said back on October 14:

“Intel just hit a low of $14 last Friday so there is nothing wrong with going bottom fishing here. The only thing that could be troublesome is the fact the company could miss earnings come next quarter (January 2008) but until then there is a decent chance you could do well going long on Intel.”

Intel went on to hit a high of $16.49 by the end of October and there was an opportunity to make some good returns on a couple of short and longer-term call options. Heck, you could have made $200 in a couple of weeks if you had bought 100 shares as a stock trade.

Now Intel lowers guidance again. They had already lowered guidance in November when they said they expected revenue of $9 billion versus Wall Street’s estimates of $10.4 billion. The smoke-and-mirrors is that Intel has actually trimmed its numbers by 20%. Wow….that is the real story folks.

It’s obvious people are not spending on discretionary consumer electronics/ PCs and the holiday season wasn’t much help. Intel can’t be too happy as consumers and companies continue to cut back. The January 20 2010 calls (WNLAD, $0.92, down $0.08) were trading for $2 three months ago and the January 15 2010 calls (WNLAC, $2.30, down $0.17) now become the new “20’s”. These call options have an entire year before they expire.

These were good trades for a couple of weeks back in October and are looking like possible trades again. However, we will wait until after Intel reports earnings on Thursday to see where these options are. Intel has a 52-week low of $12…

The lack of volume has been missing to take the market higher and the VIX (^VIX, 42.82, up 0.26) has been settling into the high 30’s, low 40’s range over the past few weeks. This has created a tighter trading range and we could easily get an explosion to to the upside or downside depending on what takes place over the next couple of weeks. The market is trying to find a direction and until it does we will have to trade in tight windows.

Rick Rouse

Note: If you have any questions about our trading strategies, please feel free to call Mike Albright. He is our Chief Market Strategist and he will be happy to tell you about our mentoring program. 1-877-709-8716.